Module 3

Friday, September 17, 2021 7:25 PM

Exemption
Tax exemption: the grant of immunity to a burden to which others are subject to

Reason why it is not violative of equal protection clause

The power of legislation in taxation is vast.

Exemption still has limits though

What grants tax exemptions

- Treaties
- Ordinance
- Constitution
- Laws, statues, special laws

Construction (of tax exemption)

Strictly against the taxpayer and liberally in favor of the government
Ratio: reduces income of the government

Exception:
- Law provides
- Exception is in favor of the government, religious and charitable institutions
- Affecting special classes of persons

Exemption on taxation (54)

Reason: it's stupid
- Government properties
- LGU
- Agencies performing governmental functions (unless expressly taxed)
agencies performing proprietary functions are not (unless expressly untaxed)
- GSIS
- SSS
- PHIC
- PCSO
- Instrumentality of the National Government (from local taxation)

Concept of income tax and income

NIRC Sections 2-23

Corporation - includes partnership EXCEPT general professional partnership

- Subject to corporate tax

Income - all wealth that flows into the taxpayer except a return on capital

If A made pautang to B, then forgave the utang, is it income?

No, it is donation. Ratio: there is no exchange of economic values

A, a stockholder, is forgiven from his debt to the corporation. Is it considered income?

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A, a stockholder, is forgiven from his debt to the corporation. Is it considered income?
Yes. Ratio: Trust fund doctrine. The legal capital of the corporation should never be returned to the
stockholders while the corporation is still existing. The cancellation is a form of INDIRECT DIVIDEND

ning buy si A ug merchandise then ni taas ang value sa merchandise. is it income?

No. wala pa niya gi sell
GR: mere increase in value of a property is not income. If sold na, yes income
X: depreciation

Depreciation is an expense. So if the property was reevaluated and then the value increased, so it
follows na nag increase din ang depreciation. So more expenses = less income for the government.
Para hindi sad ang government, the INCREASE will be taxed
Ratio: economic benefit principle

If the value of a property decreases due to the reevaluation, and the same value will be used the

Assignment: read wilcox doctrine

Fringe benefit tax
Read further articles

Gross income: section 32

Drug dealer income

- Yes subject to tax
- Ratio: falls under s 32

Wilcox doctrine:

taxable gain is conditioned upon

(1) the presence of a claim of right to the alleged gain and
(2) the absence of a definite, unconditional obligation to repay or return that which would otherwise
constitute a gain.

Without some bona fide legal or equitable claim, even though it be contingent or contested in
nature, the taxpayer cannot be said to have received any gain or profit within the reach of Section
22(a). See North American Oil v. Burnet, 286 U.S. 417, 424, 52 S.Ct. 613, 615, 76 L.Ed. 1197.

Nor can taxable income accrue from the mere receipt of property or money which one is obliged to
return or repay to the rightful owner, as in the case of a loan or credit. Taxable income may arise, to
be sure, from the use or in connection with the use of such property.

Exceptions, to what extent taxed:

Thus if the taxpayer uses the property himself so as to secure a gain or profit therefrom, he may be
taxable to that extent. And if the unconditional indebtedness is cancelled or retired taxable income
may adhere, under certain circumstances, to the taxpayer. But apart from such factors the bare
receipt of property or money wholly belonging to another lacks the essential characteristics of a gain
or profit within the meaning of Section 22(a).

That the taxpayer's motive may have been reprehensible or the mode of receipt illegal has no
bearing upon the application of Section 22(a).

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bearing upon the application of Section 22(a).

This conclusion is unaltered by the fact that the taxpayer subsequently dissipated all of the
embezzled funds in gambling houses.

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